Free factsheet: EIS at a glance

Seed Enterprise Investment Scheme

SEIS in a nutshell

Help start-up companies get off the ground and for every £1 you invest, save up to 64p in income and capital gains tax. You also qualify for IHT exemption, potentially saving up to another 40p per £1 you invest.

VCTs: the new pension for higher earners?

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

Whilst pensions have become tainted in the eyes of many after
never-ending government reforms, they have
probably been the best and most tax-efficient way over time to save for
retirement. Up until earlier in this decade, some high earners could invest
£255,000 per tax year in a pension and get a significant percentage of that
back in tax relief.

Those days are gone.

Since the years immediately following the financial crisis, the tax
benefits pensions offer have gradually been eroded by successive governments
eager to collect more tax.

Rule changes make it very difficult to build a decent retirement fund

From 6 April 2016, many high earners will only be able to
contribute £10,000 per tax year to their pension. In addition, because of the
lifetime allowance being reduced by 20% to £1million, many will be unable to
make any contributions at all.

These restrictions along with miserly gilt rates mean getting a
decent investment income from many products designed for retirement is almost
impossible.

So what options are there for those who want to invest tax
efficiently but have already used up their pension allowances?

The answer in my view could be one that is surprisingly
under-publicised. Venture capital trusts, or VCTs as they’re commonly known.

The similarities to pensions are there: upfront tax relief and tax-free
growth. However, you currently receive two added bonuses:

With VCTs, your annual allowance is much more generous
– £200,000. When you invest you also
receive up to 30% income tax relief, so your effective cost could be as little
as £140,000.

You get tax-free dividends. So to receive £1,000 in
your hand from a VCT, you only need a £1,000 dividend as there is no tax and it
doesn't even need to be listed on the annual tax return. Compare this to a
"normal" investment. As an additional-rate taxpayer you would need a
cheque for £1,444 to receive £1,000 in your pocket after tax (under current
pre-April 5 2016 rules).

As with any other dividends, the manager aims to deliver a
certain yield, typically around 5%, but cannot guarantee this will be achieved.

If you don't want income now, and you are planning for your
future retirement then many VCTs offer a dividend reinvestment scheme. The
shares bought within the scheme will count towards your annual VCT investment allowance
and qualify for the 30% upfront tax relief. Therefore if you make large
contributions you need to ensure this doesn’t take you over the £200,000 limit.

A big difference between pensions and VCTs is in where they are
invested. A pension such as a SIPP is generally invested in shares and bonds of
large companies, in the UK and overseas. VCTs instead invest in very small UK
companies so they are considerably riskier. Please read the Risks and Commitments to find out why these products are not
suitable for everyone.

Please remember that should you be in any doubt about the
suitability of these investments or your pension provision then you should
obtain professional financial advice.

That said for those who are limited by the new much lower annual
pension allowance or who may have hit the lifetime allowance, VCTs could be an
interesting addition for more sophisticated investors as part of a balanced portfolio.

Wealth Club aims to make it easier for
experienced investors to find information on – and apply for
– tax-efficient investments. You should base your investment decision on the
provider's documents and ensure you have read and fully understand them before
investing. This review is a marketing communication. It is not advice or a
personal or research recommendation to buy the investment mentioned. It does
not satisfy legal requirements promoting investment research independence and
is thus not subject to prohibitions on dealing ahead of its dissemination.

Free Resources

Company

Awards

Wealth Club Membership

When you request information from our website or register to receive news and alerts, you become a member of Wealth Club and will receive further information by post and/or email about our products and services. There are no costs or obligations attached to your membership and you can cancel it at any time by contacting us. Your personal data will remain confidential, and will never be passed to any other company, unless required by law.

Important Notice

This website is directed exclusively at, and intended to be used only by, persons in the UK who will be required to self-certify as Sophisticated Investors or High Net Worth Individuals before applying to invest in any of the products featured. It is not directed at any person where (by reason of nationality, residence, domicile or otherwise) the usage of the website is prohibited.

The investment products on this website are not for everyone. They are generally higher risk and require a longer investment term. You may get back less than you invest. It is therefore important that you understand the Risks and Commitments of these products.

We’ve made every effort to ensure the accuracy of the material on this website, but cannot guarantee its accuracy or currency. It reflects our understanding of current product and tax rules, which may change in future. It is for general information only and should not be regarded as constituting an offer or a solicitation to buy or sell any securities, or as investment or tax advice. If you are in any doubt as to the suitability of the products for your circumstances, please seek specialist financial or tax advice.

Wealth Club Limited is not responsible for the content of external third party material featured on our website.